Discussion Paper Series 2016-E-3

Forecast Disagreement and the Inflation Outlook:
New International Evidence

Pierre L. Siklos

Short-term inflation forecast disagreement in nine advanced economies is examined. Domestic versus global determinants are considered. Disagreement is evaluated vis-à-vis several benchmarks. An indicator of central bank communication is added. A quasi-confidence interval for disagreement is also estimated. Disagreement is sensitive to the chosen group of forecasters examined. The GFC led to a spike in inflation forecast disagreement that was short- lived. Forecast disagreement can be reasonably seen as a variable that can change abruptly from high to low disagreement regimes. Furthermore, low and high levels of forecast disagreement can coexist with high levels of uncertainty. There is a global component in forecast disagreement but domestic determinants appear to be of first order importance. There appear to be relatively few indications that forecasts are coordinated with those of central banks with the possible exception of professional forecasters. Finally, central bank communication appears to play an only small role in explaining forecast disagreement.

Keywords: forecast disagreement; inflation; central bank communication

Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.

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